Tuesday, July 26, 2011

Speaking of basis points....

... that is literally all the Sports and Exhibition is currently paying as interest on the bonds that paid for Consol Arena. Check it out (you might need to click through the first screen you get), but this week their interest costs are 0.11%. Note the decimal point is in the correct place. Basically it is money for (almost) nothing.

I still think both the state and the corporate owner of the Rivers Casino need to both ante up $7.5 million annually to pay for those bonds. If only Don Barden could have negotiated that he only had to pay the interest on those bonds and not the fixed $7.5mil a year, his estate might be flush with a few more assets than they wound up with.

How do interest rates get that low? In part because it turns out the state of Pennsylvania is backing the bonds, even though I am pretty sure that was not quite clear to the market up front. They clearly think so now if you read the quotes from the article in that last link. (We make things a lot more complicated than they need to be.) It all begs some interesting thoughts. Out in Philadelphia a growing municipal finance crisis was only averted when their Intergovernmental Cooperation Authority basically reflaoted a lot of Philadelphia debt with state backed debt at much lower rates than the city was able to get itself. Our ICA I think is statutorily prevented from incurring any such debt which would be backed by the state. So it is just a only thought experiment to consider that if the city were able to refloat it's debt at interest rates the SEA is getting these days, a lot of its problems would.. if not go away.. be much less problematic. Even the pension issue would be a far smaller concern.

I still don't quite get why they paid for bond insurance on that debt if the bonds were backed by the state, but who cares....